The ‘end of the bailout memorandum’ and SYRIZA’s failure

Though the government has opted for a modest announcement of the formal end of the bailout programme, the government’s rhetoric will focus on the supposed success and the resulting new paths for investment.

Fiscal surveillance here to stay
The realities, however are quite different. What is ending is the period when the disbursement of loan tranches required successful evaluations, which presupposed legislating a series of measures which were part of the original memorandum, its repeated revisions, and the updating of the medium-term programme.

The end of this formal phase does not signal the end of strict fiscal surveillance, which will last until Greece’s loans are paid off.

For the next few years fiscal surveillance will be exceptionally strict. Greece has committed itself to primary surpluses of 3.5 percent through 2022, and 2.2 percent until 2060, and measures such as pension cuts (18 percent) and the lowering of the tax-free threshold.

The evaluation of the post-bailout era will depend on whether Greece receives the profits from Greek bonds (600mn euros) and from the lifting of the interest rate penalty that was initially imposed (200mn euros).

The return to the markets will largely depend on whether the country’s creditors are able to send positive messages.
The mandated high primary surpluses – even if the government is right in saying that it can choose its own policies – leave little room for substantial policy changes.

It will be very difficult to reduce the ENFIA real estate tax, which is the backbone of fiscal policy. The same stands true for any effort to reduce the VAT tax or to cancel the lowering of the tax-free threshold.
The institutional framework for privatisation is also set.

Accounting for a failure
The government is attempting to depict as a success the end of the bailout memorandum per se. Yet, that is not due to any success of all the memorandums in reaching their goals.

Simply, with the Greek economy stabilised and with a 24.1bn euro cash buffer that will cover debt servicing for 20 months, European governments are ridding themselves of the prospect of a new loan, that would confront them with the opposition of populist or extreme-right political forces.

Beyond that, the memorandum has been a failure.
The debt albatross remains

In the first quarter of 2018, the debt was 322.5bn euros, or 180.4 percent of GDP, according to Eurostat. In 2014, before SYRIZA came to power, it was 178.6 percent of GDP, and at the end of 2009, when it was considered unsustainable, it was126.7 percent of GDP. The memorandums signaled an unprecedented over-indebtedness, which in turn led to perpetually high primary surpluses and constant surveillance.

For all this, there are accrued responsibilities of previous governments and European institutions, beginning with the choice of combining an aggressive privatisation programme with wage cuts (internal devaluation), flexible labour relations, and insistence on paying off the debt rather than a major haircut. That choice created a vicious circle of recession and over-indebtedness.

The responsibility of the Tsipras-Kammenos government lies in the fact that it came to power pledging tough negotiations and real debt reduction. However, they had no plan and ended up with an unconditional surrender, with yet another memorandum and loan contract.

Negative social reality, weak growth

The social realities are no cause for celebration. Unemployment in May fell from 20 percent to 19.5 percent. At the current rate, it will take at least five years to reach 2008 unemployment levels.

In fact, any rise in employment is due to part-time jobs to a much larger extent than before. In 2017, 54.9 percent of hiring involved part-time or rotational jobs. Elastic labour is poorly paid. At the end of 2017, the average monthly wages of part-timers was slightly under 400 euros.

As for the growth rate, it was 1.4 percent of GDP in 2017, while the projected rates for 2018 and 2019 are 1.9 percent and 2.3 percent, respectively. Those numbers reflect anything but a strong growth dynamic.

To a large extent, the achievement of positive fiscal results was the result of unprecedented over-taxation, which put the brakes on any growth dynamic, and created incentives for tax evasion.

In reality, the Greek economy will continue to have gaping wounds, weak growth, and the absence of a dynamic and vision.
The end of hope
The main reason the government should not be celebrating is that it handled the memorandums cynically and as a political tool.

A party that came to power representing a just popular rage and disgust and a demand for an end to disastrous policies, turned out not to have a strategy or tactics to achieve its goals.

That is why it went from bravado to capitulation, and the full implementation of the memorandums in the most cynical manner. They do not believe in the memorandums, but they are religiously implementing them in order to stay in power.

Although they implemented the memorandums much more decisively than their predecessors, they refuse to admit their capitulation. They try to prettify reality and blame everything on previous governments.

SYRIZA, which once battled the idea that there is no alternative (TINA) to the memorandums, in the end served them in the best possible manner.

With its 2015 capitulation and the obvious lack of any plan or preparation, it was SYRIZA itself which sent the message that there could be no other course.

With the negative overall results of the memorandums, and with Greek society having limited expectations, this may be the worst legacy of the SYRIZA-Independent Greeks government.